For­eign Port­fo­lio Tap Dries, Al­most

The Economic Times - - Finance & Commodities - @times­group.com The main for­eign wor­ries over the In­dian mar­ket are the rel­a­tively high val­u­a­tion lev­els, the still medi­ocre cor­po­rate in­vest­ment growth and, linked to this, the bal­ance-sheet prob­lems in state-owned banks

Sanam.Mir­chan­dani Mumbai: Flows from for­eign port­fo­lio in­vestors into In­dia have slowed of late as rich val­u­a­tions and de­lay in cor­po­rate earn­ings re­cov­ery have re­duced their ap­petite for do­mes­tic stocks. July reg­is­tered the sec­ond straight month of fall in for­eign in­flow into In­dian mar­kets to ₹ 2,461 crore from ₹ 3,940 crore in June. The June fig­ure was al­most 40% lower than the month be­fore. So far in Au­gust, they have sold ₹ 1,349 crore worth of shares.

Over­all, in the June quar­ter, mar­kets such as Brazil, Tai­wan, South Korea and Malaysia saw fall in FPI flows be­sides In­dia.

“The main for­eign wor­ries over the In­dian mar­ket are the rel­a­tively high val­u­a­tion lev­els, the still medi­ocre cor­po­rate in­vest­ment growth and, linked to this, the bal­ance-sheet prob­lems in the state-owned banks,” said Maarten-Jan Bakkum, se­nior emerg­ing mar­kets strate gist at NN In­vest­ment Part­ners which man­ages about $208 bil­lion in as­sets.

Con­cerns over ris­ing in­ter­est rates in the US and po­ten­tial ta­per­ing of loose monetary pol­icy by the NN In­vest­ment Part­ners

Euro­pean Cen­tral Bank have led to a slow­down of flows into all emerg­ing mar­kets, not just In­dia, said Jorge Mariscal, emerg­ing mar­ket chief in­vest­ment of fi­cer, UBS Wealth Man­age­ment. Money man­agers be­lieve there are some un­der­ly­ing risks that the In­dia mar­ket is not fac­tor­ing in like slug­gish earn­ings growth. “Con­sumer sta­ples or even paint com­pa­nies are show­ing al­most zero vol­ume growth but sell­ing at 35-40 times for­ward ear nings,” said Florida-based Ra­jiv Jain, Chief I nve s t ment Of f i c e r a t GQG Part­ners-a bou­tique in­vest­ment man­age­ment firm.

Some of the pri­vate sec­tor banks are also grow­ing in riskier ar­eas like SME (small and medium en­ter­prises), mi­cro fi­nance or un­se­cured con­sumer lend­ing which may lead to higher NPL over time but val­u­a­tions hardly in­cor­po­rate that risk.

At a price-to-earn­ings ra­tio of 19.6 times based on earn­ings for the cur­rent fi­nan­cial year, Nifty is rel­a­tively ex­pen­sive to emerg­ing mar­kets. The MSCI EM in­dex is trad­ing at 13.4 times. Sen­sex is up 21.2% for the year.

This rally in bench­mark is cour­tesy a few blue chip stocks, which have a sig­nif­i­cant in­dex weigh­tage. The broader mar­ket ap­pears more stretched, with BSE’s MidCap gauge soar­ing 29.7% this year. Many of the stocks have dou­bled or tre­bled, de­fy­ing fun­da­men­tals. Bank­able ideas are hard to come by in such a sce­nar- * In data for Au­gust, data in­cludes pro­vi­sional FII/DII fig­ures of Fri­day (Aug 4) and Mon­day (Aug 8)

io. “The macro story for In­dia con­tin­ues to look great but find­ing sin­gle stock bot­tom-up ideas has be­come dif­fi­cult,” said Arbind Ma­h­eswari, head of eq­ui­ties sales trad­ing at Bank of Amer­ica Mer­rill Lynch.

A re­ver­sal in trend in the US dol­lar, which looks over­sold in the short term, could put pres­sure on for­eign flows into In­dia, added Ma­h­eswari. “We would not ad­vise ad­ding un­nec­es­sary risk to port­fo­lios. One should stay in­vested in solid com­pa­nies, which have shown their ca­pa­bil­i­ties to de­liver. These val­u­a­tions don’t give you much room for er­ror,” said Ma­h­eswari.

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